The Latin America and the Caribbean (LAC) region has proved to be relatively resilient in the face of increased debt stress, stubborn inflation, and uncertainty arising from the Russian invasion of Ukraine. Income and employment have largely recovered from the pandemic, poverty has receded, and markets remain guardedly optimistic about the near future. However, headwinds have picked up, and the 2023 outlook is substantially bleaker than 2022.
Global uncertainty is rising, and while the world may want to move on from COVID-19, new variants and diseases will remain a threat. Strengthening resilience, both on the health and macroeconomic fronts, will be paramount. Progress remains pending in both vaccination coverage and health system preparedness, while the institutionality of macroeconomic policy in some countries is being questioned. Although numerous global factors can explain the very modest 2023 growth rates, the forecasts going forward predict the same lackluster pace of the past two decades, which remains insufficient to reduce poverty, promote inclusion, and defuse social tensions.
Hence, identifying the opportunities for, and bottlenecks to, dynamic, inclusive, and sustainable growth remains paramount. In particular, the evolution of the global economy is providing two new areas of opportunity: the trend toward nearshoring—moving production closer to the US and European markets—and the imperative to combat climate change, which is giving the region a new comparative advantage in sun, wind, hydro, and natural capital. Taking advantage of these will require greater integration into the global economy. Yet, paradoxically, in the face of these opportunities, LAC is becoming less integrated. Trade intensity has largely stagnated, and foreign direct investment (FDI) to most countries has declined.
Strengthening Resilience, Boosting Growth
As in the rest of the world, COVID-19 has largely receded, and LAC is back to business. On the economic front, challenges remain and are perhaps becoming more acute, but as yet markets remain guardedly optimistic. On average, the region has fully recovered its lost growth of gross domestic product (GDP), although since COVID-19, growth is below that of all regions except war-torn Eastern Europe, which LAC only slightly exceeds. Further, the averages obscure significant variations across countries, with the Caribbean in particular continuing to lag, partly because of the sluggish recovery of tourism.
Looking forward, growth is expected to fall as former tailwinds fade and headwinds strengthen: commodity prices are softening; global interest rates continue to climb to combat inflation, with depressive effects on Group of Seven (G7) markets; and China’s recovery remains unsteady. Forecasts for growth in the United States, the euro area, and Japan have fallen by 0.8, 1.4, 0.8 percentage points, respectively, from mid-2022 projections, while China’s stagnated at 5.3 percent. Largely following these trends, LAC forecasts of 2023 growth have been steadily downgraded over the last six months to 1.4 with an increase to 2.4 in 2024; while the variance around market forecasts has increased, proxying for increased uncertainty globally. The recent wave of bank
failures in the US and Europe introduces additional uncertainty around whether the advanced countries will moderate future interest rate rises, the likelihood of a recession in the G7, and the trajectory of future inflation. Further, whether the underlying dynamics have resonance in the LAC banking systems and capital flows remains to be seen.
Get more Insights here :
http://dawgen.global/wp-content/uploads/2023/04/Latin-America-and-the-Caribbean-Economic-Review-April-2023.pdf
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